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Unformatted text preview: multiplier can be considerably smaller than the simple multiplier. Monetary policy is the Federal Reserve's use of open market operations, changes in the discount rate, and changes in the required reserve ratio to change the money supply. If the Fed buys government securities on the open market, reduces the discount rate, or decreases the required reserve ratio this will increase the money supply. The opposite is also true. There are limitations associated with the effectiveness of monetary policy as there are with the use of fiscal policy. Some of those limitations include the fact that the money multiplier can change, there is the presence of non-bank financial institutions which affect the money supply that are outside the control of the Fed, and the difficulty in choosing which measure of the money supply to change....
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- Spring '08